Using Universal Proxy Cards in Contested Director Elections

Shareholders of public companies do not manage the day-to-day operations of a company, but they retain one of the most important governance rights—the ability to elect members of the Board of Directors. Through informed voting decisions, shareholders influence corporate strategy, oversight, and long-term policy direction.

The number of directors and the length of their terms are established in a company’s articles of incorporation or bylaws. As a result, shareholders understand the governance impact of their votes prior to participating in director elections.

Director Nominations and Shareholder Voting Rights

Director candidates are typically recommended by company management; however, shareholders also have the right to nominate alternative candidates whom they believe better represent their interests or strategic vision for the company.

Director elections occur during the company’s annual shareholder meeting. Because relatively few shareholders attend these meetings in person, most voting occurs through proxy authorization.

Historically, proxy voting created structural disadvantages for shareholders participating remotely.

Limitations of the Traditional Proxy System

Under prior rules, proxy voters were required to select between competing ballots:

• A proxy card supporting management’s full slate of director nominees; or
• A proxy card supporting the dissident shareholder slate.

This system effectively created a winner-take-all voting structure, favoring management nominees. Shareholders voting by proxy were unable to mix and match candidates from competing slates, even though shareholders attending meetings in person retained that flexibility.

The disparity frustrated proxy voters and limited meaningful shareholder choice in contested director elections.

SEC Adoption of Universal Proxy Card Rules

To address this imbalance, the U.S. Securities and Exchange Commission (SEC) adopted final rules in 2021 requiring the use of universal proxy cards in contested director elections.

Under these rules, proxy cards must include all duly nominated director candidates, regardless of whether they are proposed by management or dissident shareholders. The amendments allow shareholders voting by proxy to select their preferred combination of nominees in the same manner as shareholders voting in person.

Key Requirements Under the Universal Proxy Rules

The SEC’s amendments impose several procedural and disclosure requirements on both registrants and dissident shareholders, including:

• Providing proxy cards listing all management and dissident nominees;
• Exchanging advance notice identifying director nominees;
• Complying with established filing deadlines;
• Meeting minimum solicitation requirements applicable to dissident parties;
• Following standardized presentation and formatting requirements for proxy cards;
• Clearly specifying shareholder voting options;
• Disclosing the effect of a shareholder’s decision to withhold votes from nominees.

To ensure that shareholder-nominated candidates demonstrate meaningful investor support, dissident parties are also required to solicit shareholders representing at least 67% of the voting power of outstanding shares.

Implications for Corporate Boards and Executives

Universal proxy rules place proxy voters and in-person voters on equal footing, significantly increasing shareholder influence in contested elections. As a result, companies must prepare more carefully for annual meetings and potential activist challenges.

Corporate leadership can mitigate risk by:

• Maintaining transparency in governance practices;
• Providing shareholders with clear and comprehensive information regarding director qualifications;
• Demonstrating board effectiveness and strategic alignment;
• Engaging proactively with shareholder concerns prior to proxy contests.

Well-informed shareholders are more likely to evaluate candidates based on experience, integrity, and strategic value rather than name recognition or tenure alone.

The Importance of Strong Board Governance

Effective board composition remains central to sustaining corporate strategy and protecting shareholder value. Universal proxy voting increases accountability while reinforcing the importance of maintaining a qualified, independent, and strategically aligned Board of Directors.

The securities attorneys at Corporate Securities Legal LLP have long advised corporate boards on governance preparedness, proxy compliance, and shareholder engagement strategies. Proactive legal guidance helps companies preserve board stability while ensuring compliance with evolving SEC regulations governing contested director elections.